Life insurance is a product sold by an insurer to an insured, wherein the insurer agrees to provide a benefit to one or more designated beneficiaries upon the occurrence of an insured event. The insurer and an insurance purchaser enter into a contract, whereby the insurer agrees to pay a sum of money (the benefit) upon the insured's death (the insured event). In exchange, the purchaser of the insurance policy agrees to pay fees at regular intervals (the premiums), the premiums being determined based on the insurance company's classification of the individual within its risk classification system. A life insurance policy is typically purchased by or on behalf of an individual to be insured, and upon purchasing the policy the purchaser designates one or more individuals or entities (the beneficiaries) to receive the benefit under the policy if and when an insured event occurs. Typically, the policy owner begins paying premiums coincident to commencement of coverage under the policy.
Insureds and other purchasers of insurance want insurance coverage that provides high benefit amounts in exchange for low premium payments. Because insurance represents a risk to the insurer, insurers want to provide coverage having low benefit amounts in exchange for high premium payments. These opposite incentives have inspired various types of life insurance to satisfy varying needs of insurers and insureds.
Permanent forms of life insurance provide an in-force benefit to a beneficiary upon the occurrence of an insured event anytime during the life of the insured, until an end-of-coverage time indicated by the end of a mortality table. Permanent insurance usually also provides a paid-up benefit, such that if the insurer ceases receiving premium payments owed for insurance coverage, the beneficiary will still receive any accumulated paid-up benefit upon occurrence of the insured event. However, permanent insurance typically provides a relatively low in-force benefit in exchange for relatively high premiums. The paid-up benefit available if an insured or other purchaser of coverage stops making required premium payments is typically even lower than the in-force benefit. Both the in-force benefit and the paid-up benefit may be so low that permanent insurance may not satisfy an insurance purchaser's goal of securing a substantial benefit to be distributed to a beneficiary upon the occurrence of an insured event.
Term insurance obligates an insurer to distribute a benefit to a beneficiary if an insured event occurs during the relatively short term of the coverage. Insureds or other purchasers of insurance on the behalf of the insured make one or more premium payments in exchange for term insurance coverage. Term insurance typically provides a relatively higher benefit than permanent insurance purchased for the same premium amount. However, term insurance does not provide a paid-up benefit. Moreover, term insurance typically provides coverage for a relatively short period of time; that is, it typically must be renewed for subsequent terms to provide a benefit to an insured for a relatively longer period, such as for the duration of the insured's life. Often, an insured must re-apply for term insurance and/or must prove that the insured is currently in good health to receive renewed term insurance coverage. Some insureds are therefore unable to re-purchase term insurance providing the same benefit amount as previous coverage in exchange for the same premium payments owed for previous coverage. Such insureds may thus be unable to continue to afford the desired insurance coverage. Since term insurance does not provide a paid-up benefit, a failure by an insured or other purchaser of coverage to pay premiums may result in a lack of insurance coverage.
Various combinations of the above types of insurance have been suggested to overcome the various problems noted with respect to coverage periods, premium payment amounts, benefit amounts, and paid-up benefits. However, no existing insurance product provides coverage having an adequately high benefit in exchange for adequately low premium payments while still providing paid-up insurance in case an insured or other insurance purchaser cannot continue making premium payments. Nor do existing insurance products enable an insured to secure such coverage in exchange for a level premium such that the coverage effectively extends for the duration of the life of the insured.